$24B in Match Dollars Left Unclaimed

A research
report issued by Financial Engines, “Missing Out: How Much Employer 401(k) Matching Contributions do Employees Leave on the Table?,” estimates that Americans leave $24 billion
in unclaimed 401(k) company matches on the table each year.

Why do so many American retirement plan participants pass up the chance to potentially receive thousands of additional dollars every year in the form of employer 401(k) matching contributions? The company examined the saving
records of 4.4 million retirement plan participants at 553 companies, and found
that one in four employees (25%) misses out on the full company 401(k) match by
not saving enough. The typical participant failing to receive the full match loses
out on $1,336 of potential free money on the table each year, which adds up to
an extra 2.4% of annual income not received. With compounding, this could amount to as much as $42,855 over 20 years.

Using data from its own client base
of large employers that provide advice services, Financial Engines based its
data on those 401(k) participants who are eligible to contribute into their
401(k) plans, says Greg Stein, director of financial technology at Financial
Engines. They filtered down further to those participants for whom they have
salary data, then those in a plan with an employee match to arrive at 4.4
million participants.

Most employers (92%) that offer a
401(k) plan also match their employees’ contributions, according to data
from Aon Hewitt. The most common scenario is one dollar for every dollar
the employee contributes, up to 6% of the employee’s annual salary.

“Plan sponsors and plan advisers
have a number of levers at their disposal to impact these savings rates and hopefully
these numbers will help them to think about how they might approach the topic
with their participants,” Financial Engines Spokesman Mike Jurs tells PLANADVISER.

Receiving services from an adviser
meant participants were more likely to get the match, no matter the participant’s
age or income level, according to Financial Engines’ report. Age and income do
have some impact on whether or not the participant will walk away from the
match, Stein says. “The larger your income and the greater your age, the less
likely you were to miss out on the full employer match,” he tells PLANADVISER. For
some ages, between 35 and 45, the effect flattens a bit, likely because they are
buying a first house, paying for childcare and starting to put money away for their
children’s education.

Next:
Advice plays an important role in receive the match.

The Impact of Advice

The report found that across all
ages and income levels, participants who used advisory services missed out less
on their employer match compared with those not receiving this help (15% versus
26%). Among employees earning less than $40,000 who used workplace advisory
services, 25% percent missed out on part of their employer match, compared with
44% of those who did not use advice services.

The numbers give plan sponsors a
clear assignment, Stein says, and can be used in messaging targeted at early middle age savers: “If you’re not getting the full
match, take a second look at your contribution level.” Or, he says, they can
message younger employees, who have time on their side. Plan sponsors can
remind them of the big benefit they gain in getting started early, since they
can accumulate more savings over time, and take advantage of the compounded growth in
those savings.

“Many people may feel they can’t
afford to save more,” Stein says, adding that he hopes the report will help
people realize they can’t afford not to save, if they are unaware of the
benefit. If saving is a challenge, there are ways to save more—enrolling in
auto escalation or contributing the amount of a raise, for example—without feeling it as much.
The report can also raise awareness of the benefits of meeting with an adviser.

The reason Financial Engines
decided to try to quantify the amount of unclaimed match money was that it had
never been calculated previously, Jurs says. “Others in the industry have
looked at matches,” Jurs says, “but we never saw the amount quantified. Just
how much are people leaving on the table? We thought it would be interesting to
find out.”

“The number is real money,” Stein concludes, “and it’s kind of a wild number. We knew people weren’t saving enough to get the match, but the amount was surprising.”